Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-28T15:59:50.938Z Has data issue: false hasContentIssue false
  • English
  • Français

Reciprocally Interlocking Boards of Directors and Executive Compensation

Published online by Cambridge University Press:  06 April 2009

Kevin F. Hallock
Kevin F. Hallock
Affiliation:
Department of Economics and Institute of Labor & Industrial Relations, University of Illinois at Urbana-Champaign, 1206 South 6th Street, Champaign, IL 61820.
Get access Rights & Permissions [Opens in a new window]

Abstract

Is executive compensation influenced by the composition of the board of directors? About 8% of chief executive officers (CEOs) are reciprocally interlocked with another CEO—the current CEO of firm A serves as a director of firm B and the current CEO of firm B serves as a director of firm A. Roughly 20% of firms have at least one current or retired employee sitting on the board of another firm and vice versa. I investigate how these and other features of board composition affect CEO pay by using a sample of 9,804 director positions in America's largest companies. CEOs who lead interlocked firms earn significantly higher compensation. Also, interlocked CEOs tend to head larger firms. After controlling for firm and CEO characteristics, the pay gap is reduced dramatically. However, when firms that are interlocked due to documented business relationships are considered not interlocked, the measured return to interlock is as high as 17%. There also is evidence that the return to interlock was higher in the 1970s than in the early 1990s.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 32 , Issue 3 , September 1997 , pp. 331 - 344
Copyright
Copyright © School of Business Administration, University of Washington 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abowd, J.; Kramarz, F.; and Margolis, D.. “High Wage Workers and High Wage Firms: Compensation Policies and Firm Performance in France.” Mimeo, (03 1993).CrossRefGoogle Scholar
Bearden, J., and Mintz, B.. “Regionally and Integration in the American Interlock Network.” In Networks of Corporate Power, Stockman, F. N., Ziegler, R., and Scott, J., eds. Cambridge, U.K.: Polity Press (1985), 234–249.Google Scholar
The Directory of Corporate Affiliations. National Register Publishing (1992).Google Scholar
Jensen, M. C., and Murphy, K. J.. “Performance Pay and Top Management Incentives.” Journal of Political Economy, 98 (No. 2, 1990), 225–264.CrossRefGoogle Scholar
Koenker, R., and Bassett, G.. “Regression Quantiles.” Econometrica, 46 (No. 1, 1978), 33–50.CrossRefGoogle Scholar
Lazear, E. P., and Rosen, S.. “Rank-Order Tournaments as Optimum Labor Contracts.” Journal of Political Economy, 89 (No. 5, 1981), 841–864.CrossRefGoogle Scholar
Million Dollar Directory. Dunns Marketing Services (1992).Google Scholar
Morck, R.; Schliefer, A.; and Vishny, R.. “Alternative Mechanisms for Corporate Control.” American Economic Review, 79 (09 1989), 842–852.Google Scholar
Murphy, K. J. “Corporate Performance and Managerial Remuneration: An Empirical Analysis.” Journal of Accounting and Economics, 7 (1985), 11–42.CrossRefGoogle Scholar
Rees, A. “The Tournament as a Model for Executive Compensation.” Journal of Post Keynesian Economics, 14 (Summer 1992), 567–571.CrossRefGoogle Scholar
Rosen, S. “Authority, Control, and the Distribution of Earnings.” Bell Journal of Economics, 13 (Autumn 1982), 311–323.CrossRefGoogle Scholar
Standard and Poor's Register of Corporations, Directors, and Executives. McGraw Hill (1992).Google Scholar
Who's Who in Finance and Industry, 27th Edition. Marquis (1992).Google Scholar